Kelly v. Herrell

BRIAN J. KELLY, Appellant, v. PETER FLATLAND HERRELL, UNITED STATES TRUSTEE AND JERRY JOHNSON REVOCABLE TRUST, Appellees.

BRIAN J. KELLY, Appellant, v. BERNARD CHARLES SEIDLING, HRISTINE ANN SEIDLING, PETER FLATLAND HERRELL, DANIEL R. FREUND, ROBERT C. MEYER, SUNSHINE FAMILY LIMITED PARTNERSHIP, OAKRIDGE FAMILY LIMITED PARTNERSHIP, C&A INVESTMENTS, MIDWEST FINANCIAL, FOUR STAR PROPERTIES, INC., OASIS FAMILY LIMITED PARTNERSHIP, JERRY JOHNSON REVOCABLE TRUST AND PATRICK S. LAYNG, Appellees.

Nos. 20-cv-805-bbc, 20-cv-806-bbc

United States District Court, W.D. Wisconsin

July 6, 2021

OPINION AND ORDER

BARBARA B. CRABB DISTRICT JUDGE

These cases arise out of an involuntary petition filed on December 12, 2002 under chapter 7 of the Bankruptcy Code against debtor Brian Kelly. Over the past 19 years, the appellants Kelly and his father, Paul Kelly, have filed numerous appeals in the Bankruptcy Court for the Western District of Wisconsin, in this court and in the Court of Appeals for the Seventh Circuit. Now before the court in cases 20-cv-805 and 20-cv-806 is the appeal of the final decree entered by the bankruptcy court on August 20, 2020, pursuant to a hearing held on August 19, 2020, at which the bankruptcy court ruled on various motions and approved trustee Peter Herrell's sale of appellant's farm. Case no. 20-805, dkt. #4; case no. 20-806, dkt. #3. For the reasons set out below, I am dismissing the appeals in both cases.

As a preliminary matter, it is necessary to address the role of Paul Kelly in this litigation. In the underlying bankruptcy case, the Court of Appeals for the Seventh Circuit held that Paul Kelly was not a proper appellant because he did not have a cognizable interest in the Chapter 7 estate, was not legitimately involved in the bankruptcy case and had failed to explain how any ruling of the bankruptcy court injured him in any way that the court could correct. Kelly v Herrell, 602 Fed.Appx. 642, 645 (7th Cir. 2015). Because the reasons for the court of appeals' holding are also true for case no. 20-cv-806, 1 have removed Paul Kelly's name from the caption of that case.

The following facts are drawn from the bankruptcy court record (Bankr. dkt.), Bankr. Case No. 02-18037, unless noted otherwise. Because these cases have an exhaustive procedural history spanning almost 20 years, only those events relating to the issues raised on appeal are summarized below.

BACKGROUND

On December 12, 2002, C&A Investments, Midwest Financial and Peoples Bank of Wisconsin filed an involuntary petition under Chapter 7 of the Bankruptcy Code against appellant Brian Kelly. The petition named Bernard Seidling as Midwest Financial's representative and Seidling's wife as the representative of C&AInvestments. Kelly, 602 Fed.Appx. at 644. The bankruptcy estate's only asset was 156 acres of farm land in Dunn County, Wisconsin. Bankr. dkt #501 at 3.

Appellant unsuccessfully moved to dismiss the involuntary petition arguing, among other things, that Midwest Financial's claim was “a sham” and purchased for the sole purpose of commencing the bankruptcy case. Bankr. dkt. ##3, 10. In 2014, appellant filed an appeal of the bankruptcy court's decision, but this court held that it lacked jurisdiction over the appeal because it was untimely. Kelly v. Herrell, No. 13-cv-633-bbc, 2014 WL 1055134, at *3 (W.D. Wis. Mar. 29, 2014). The Court of Appeals for the Seventh Circuit affirmed, explaining that the denial of appellant's motion to dismiss was either a final order and thus time-barred or interlocutory and not yet appealable. Kelly, 602 Fed.Appx. at 647. The court of appeals further noted that regardless of the merit of appellant's argument, C&A Investments could have purchased the debt on its own because it had an undisputed judgment for $22, 000 and appellant had fewer than 12 creditors. IcL

On January 10, 2017, Peter Herrell, the Chapter 7 bankruptcy trustee, filed a motion seeking authority to sell appellant's farm to the Jerry Johnson Revocable Trust for the sum of $44, 000. Bankr. dkt. #335. On January 31, 2017, appellant filed an objection to the sale, alleging in part that the events leading up to the involuntary petition, the involuntary petition itself and the subsequent involuntary proceeding were all tainted with fraud because the trust was another “sham entity” created by appellee Seidling to buy appellant's farm for pennies on the dollar. Bankr. dkt. #336, #357 at 3.

After holding a hearing and considering the lengthy briefs filed by the trustee, appellants and other parties, bankr. dkt. ##350-57, the bankruptcy court issued a written decision on October 5, 2017. Bankr. dkt. #357. It concluded that “the [t]rustee should be authorized to sell the real estate to the proposed purchaser pursuant to a trustee's deed, subject to all liens, claims, and encumbrances and without the requested findings” and that “[t]he proposed purchaser can decide if the conveyance is sufficient to give it the title it needs, ” “whether it wants to go forward with the purchase and resort to a state court action to clear title, or to forgo the purchase.” Id. at 9. The bankruptcy court declined to consider appellant's fraud arguments, concluding that they had been raised and rejected in previous bankruptcy proceedings. Id. at 3-4.

Appellant appealed the sale order, which was affirmed by this court on July 13, 2018 in case no. 17-cv-793, 2018 WL 3421320, and by the court of appeals in Kelly v. Herrell, 781 Fed.Appx. 529 (7th Cir. 2019). Although appellant referred to “what [he] believe[d] to be fraud involving the filing of the bankruptcy petition and potential sale of the farm, [he made] clear that [he was] raising only one issue on appeal: whether the bankruptcy court entered the October 2017 order without proper notice and a fair hearing, in violation of [his] rights under the due process clause.” 2018 WL 3421320 at *3. See also Kelly, 781 Fed.Appx. at 532 (explaining that appellant did “not challenge the validity of the sale, only the purported lack of notice”).

On November 1, 2019, about three months after the court of appeals's decision affirming the sale order, the United States Trustee filed a motion to compel abandonment and dose the bankruptcy case on the ground that Herrell had not heard from the Johnson Trust, there was no evidence that the trust had obtained a title commitment and Herrell had not identified another willing purchaser for the farm. Bankr. dkt. #448. The United States Trustee asked the bankruptcy court to order Harrell to abandon the estate's interest in the farm, which would revert to appellant. Appellant moved to dismiss the case on the same ground, arguing that the trust was a nonexistent entity and the alter ego of Seidling. Bankr. dkt. #450. Herrell responded that he agreed with appellant. Bankr. dkt. #455.

On November 21, 2019, Seidling objected to appellant's motion to dismiss on behalf of Midwest Financial and Midwest Financial II (“an assignee of C&Ainvestments”), stating that a title commitment was requested but the title company “is still considering whether or not to issue” it. Bankr. dkt. #456. Seidling requested more time to obtain a title commitment or to clear the title in some other manner. Id. Herrell responded on lanuary 6, 2020 that C&A Investments and Midwest Financial had obtained a title commitment and intended to proceed with the sale and close it. Bankr. dkt. #468. In his reply, the United States Trustee argued that corporations must be represented by counsel, but no counsel had appeared on behalf of Midwest Financial, Midwest Financial II, C&A Investments or the Johnson Trust. Bankr. dkt. #469.

On January 16, 2020, James Sweet, a lawyer, entered an appearance on behalf of the Johnson Trust. Bankr. dkt. #481. Appellant objected, arguing that Sweet and his wife, Catherine Furay, Chief Bankruptcy Judge for the Western District of Wisconsin, and D. Alexander Martin, whom appellant asserted had practiced in Sweet's former firm, had all represented appellant previously in the bankruptcy case. Bankr. dkt. #484.

On January 17, 2020, the bankruptcy court held a hearing on the United States Trustee's abandonment motion and appellant's motion to dismiss. Case no. 20-805, dkt. #13-1 at 125-39. At that hearing, Herrell and Sweet represented that all necessary steps had been taken to complete the sale. The United States Trustee stated that he had received the assurances that he was looking for regarding the sale and no longer objected to it but would like the supplemental sales agreement to be filed and the sale to close within two weeks. Appellant continued to object to the sale on the ground that Jerry Johnson did not exist, but the bankruptcy court held that it had already ruled that the sale could go forward and that the order had been affirmed on appeal. The court also rejected appellant's objection to Sweet's appearance.

On January 20, 2020, Herrell completed the sale of the farm to the Johnson Trust subject to all existing liens and encumbrances and filed a report of sale with the bankruptcy court. Bankr. dkt. #499. The United States Trustee withdrew his abandonment motion on the ground that it had been mooted by the completed sale. Bankr. dkt. #549.

On February 19, 2020, appellant filed a motion seeking to recuse United States Bankruptcy Judge Altenberger on the ground that Judge Altenberger had a “disqualifying relationship both personal and professional” with Attorney Sweet, who allegedly had previously represented appellant in the past. Bankr. dkt. #492. He also alleged that, prior to the January 17 hearing, Judge Altenberger had had ex parte communications with Herrell about scheduling the hearing. Also on February 19, 2020, appellant asked the bankruptcy court to apply judicial estoppel...